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24 January, 11:19

On January 1, Bixby Machine signed a $210,000, 6%, 30-year mortgage that requires semiannual payments of $7,585 on June 30 and December 31 of each year. What's the correct journal entry for recording the second semiannual pay - ment? (Round interest calculation to the nearest dollar.)

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  1. 24 January, 14:34
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    Account Debit Credit

    Interest expense $6,261.45

    Mortgage payable $1,323.55

    Cash $7,585

    See detailed computation below

    Explanation:

    Mortgage:

    A mortgage is a type of debt with scheduled periodic payments secured with a collateral real estate property. Mortgages are utilized by individuals or business entities to purchase properties of significant value without disbursing the total cash upfront but instead spreading the cash outflow in to periodic payments.

    Answer and Explanation:

    Account Debit Credit

    Interest expense $6,261.45

    Mortgage payable $1,323.55

    Cash $7,585

    See detailed computation below

    Step 1. Determine the carrying amount of the mortgage after the first semi-annual payment:

    Carrying amount = Principal + interest - semi-annual payment

    Carrying amount = Principal + (Principal x interest rate) - Semi-annual payment

    Carrying amount = $210,000 + ($210,000 x (6%/2)) - $7,585

    Carrying amount = $210,000 + $6,300 - $7,585

    Carrying amount = $208,715

    Step 2. Determine the interest expense on the second semi-annual payment:

    Interest expense = Carrying amount x interest rate

    Interest expense = $208,715 x (6%/2)

    Interest expense = $6,261.45
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